Testing for Inflation Convergence Among European Union Countries: A Panel Approach

This paper attempts to test for inflation convergence in a sample of 24 European Union countries. To tackle this issue, first- and second-generation panel unit root and stationarity tests are employed so as to provide evidence of inflation convergence before and after the launch of the single currency, the euro. We also test for and then allow for cross-sectional dependence. In general, the findings reveal that conditional inflation convergence exists for all panels under study. The estimation of half lives shows that the evidence for faster speed of convergence applies for the new member states followed by the core countries and the old member states. JEL classifications: C33, E3, F33 Keywords: Inflation Convergence, EU, Maastricht Criteria, Panel data